Publication: Assessment of Contingent Liabilities and Their Impact on Debt Dynamics in South Africa
Date
2018-05
ISSN
Published
2018-05
Author(s)
Bachmair, Fritz Florian
Bogoev, Jane
Abstract
The aim of this analysis is to quantify
the losses from potential materialization of contingent
liabilities by applying a new methodology for the case of
South Africa and, to assess their impact on debt dynamics.
Accordingly, we bring a novelty to this research by
utilizing probabilities of distress, which is a different
approach compared to the existing, already applied
methodology. The central finding of the simulations
conducted is that estimated losses from contingent
liabilities, are significantly lower in the first year when
they materialize compared to the existing applied
methodology, and will gradually add up over time.
Accordingly, the solvency and liquidity situation in the
country will deteriorate. For example, the largest
deterioration will occur in the debt to GDP ratio where the
debt accumulation may be higher by 2.1 percent of GDP within
three years, compared to the baseline projection. What is
more concerning is that the debt trajectory is not
stabilizing and losses incurred from materialization of
contingent liabilities may become significant driving factor
of debt accumulation in medium-term. Ultimately, the current
estimates suggest that contingent liabilities may constitute
a drag to fiscal policy in medium-term and their long-term
accumulation may jeopardize the debt sustainability of the
country. In that respect, this analysis suggests remedial
measures and building protective buffers by the South
African Treasury in the case CLs materialize.
Citation
“Bachmair, Fritz Florian; Bogoev, Jane. 2018. Assessment of Contingent Liabilities and Their Impact on Debt Dynamics in South Africa; Assessment of Contingent Liabilities and Their Impact on Debt Dynamics in South Africa. MTI Global Practice Discussion Paper;No. 1. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/29910 License: CC BY 3.0 IGO.”